Nonrecurring Resources and the FY2011 Budget

Nonrecurring Resources and the FY2011 General Fund Budget
October 2010
State Budget Note 2010-03

In Brief

In July, the Citizens Research Council of Michigan examined the passage of the Fiscal Year 2011 (FY2011) state School Aid Fund budget and the major factors that contributed to its completion nearly three months earlier than last year. A key to the “early” adoption of the education budget was the legislature’s decision to postpone decisions regarding the General Fund budget until a later date, presumably after the August primary election. At the time, it was estimated that the General Fund faced shortfalls of $220 million in FY2010 and at least $500 million in FY2011. In late August, the Michigan legislature returned to the problems facing the General Fund budget for both years. Since that time, solutions to address these budget gaps were agreed to by legislative leaders and the governor and enacted into law. The legislature passed all of the appropriations bills that make up the FY2011 General Fund budget before October 1 and the governor signed all the bills, except the one for the 15 public universities, by the start of the new fiscal year, thereby avoiding another temporary government shutdown.

Although the FY2011 General Fund budget is technically “balanced” (projected revenues exceed approved appropriations), budget balance is premised on nearly $1 billion in one-time resources. These resources include the use of temporary federal funding, short-term savings from refinancing state general obligation debt, and advancing the collection of state revenues, including a tax amnesty program. The heavy reliance on $1 billion in nonrecurring sources means that the FY2012 budget will face a problem at least this size, before expected spending pressures are factored in. This State Budget Note summarizes the major solutions to achieve General Fund budget balance for FY2010 and FY2011 and provides some indication of the FY2012 fiscal problems that will face the new governor and the new legislature that will be seated in January 2011.

Introduction

The FY2011 budget presented yet another opportunity for the Michigan legislature and the governor to address the near decade-long structural deficit plaguing state finances. The final budget passed by the legislature and signed into the law by the governor failed again to make major inroads toward solving the state’s chronic budgetary problems. The governor’s executive budget, released in February 2010, attempted to tackle aspects of the problem through a combination of spending reforms and tax changes that would better align ongoing spending with ongoing revenues. However, the final legislative package did not include a number of the governor’s structural components, thus requiring the legislature to identify alternatives during the appropriations process to ensure that the budget was balanced. Although the final product does include some long-term structural items that will control spending growth, the budget extensively uses a variety of onetime resources in lieu of items that would ensure longer-term balance. These one-time budget actions help the FY2011 budget, but add to the structural budget problem that will resurface in FY2012.